9M17 CNP of RM299m came broadly within expectation at 78% of estimate as 4Q17 is expected to be weaker. Sales for 9M17 at RM942m made up 75% of our FY17E target of RM1.25b. No dividends as expected. UOADEV’s pipeline projects have already obtained major approvals and thus, are unaffected by the recent DBKL’s freeze on luxury properties. Maintain TP of RM2.47 but revise call to MARKET PERFORM from OUTPERFORM.

Broadly within. 9M17 CNP of RM299m came broadly within expectations at 78% each of consensus and our full-year estimates. We expect 4Q17 earnings to be slightly weaker than this quarter as there will be no other major project completions. Its 9M17 sales of RM942m is on track at 75% of our FY17E target of RM1.25b. Note that 92% of sales are driven by residentials which are mainly in the ‘affordable’ space. No dividends, as expected.

A year of completions. QoQ, 3Q17 CNP dipped by 45%, largely because of the 44% fall in revenue as 3Q17 saw less project completions (South Bank) compared to last quarter where three projects were completed. YoY, 9M17 CNP only grew by 7% albeit the strong 22% top-line growth due to margin compressions. 9M17 EBIT margins were down by 2.7ppt to 50.0% on lower development margin mix while operational fixed costs rose by 11% to RM172m. The group remains in a strong net cash position of 0.11x.

Minimal impact from the DBKL’s freeze on luxury properties. South Link (RM550m) has commenced registration, which received overwhelming interests and launch is expected in Dec 2017. We gather that most of South Link sales will spill into FY18 due to time required to convert bookings to SPA sales. Meanwhile, the Bandar Tun Razak and affordable homes @ Selayang projects will be pushed forward to next year. We expect 4Q17 sales to be driven by on-going sales from key project drivers like United Point Ph 3 (RM500m) and Sentul Point Ph 3 (RM500m) which were released in 3Q17, and thus, we are confident of our RM1.25b sales target. Regarding the DBKL’s freeze on luxury property developments, UOADEV has all the necessary approvals while a big bulk of their projects are skewed towards affordable housings in KL. They are also of the view that more land-banking opportunities could arise, which would be ideal for the group as their net cash position allows them to take long-term views on land banks without any holding costs.

No changes to earnings. Unbilled sales of RM1.41b provide close to 1.5 years’ visibility.

Maintain TP of RM2.47 based on 40% discount (+0.5SD levels) to its FD RNAV of RM4.11. We think our valuation level is fair considering its defensive attributes such as; (i) pure KL exposure with connectivity plays, (ii) high margins, (iii) net cash position, (iv) a more prominent recurring income stream from its hospitality and property investment assets, and (v) dividend yields of 6.1% which is better than sizeable MREITs’ average dividend yield of 5.1%. However, we are revising our recommendation to MARKET PERFORM from OUTPERFORM as the share price has rebounded since our call upgrade on 23/10/17.

Risks include weaker/stronger-than-expected property sales, margin fluctuations, and changes in real estate policies and/or lending environments.

Source: Kenanga Research - 22 Nov 2017